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Qualitative Forecasting

Qualitative Forecasting. Also known as Technological or Judgmental Forecasting Use Long Term No history Historical patterns are not expected to apply Several methods Subjective Exploratory S-Growth Curves. Subjective Methods. Disadvantages Bias from more outspoken people or bosses

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Qualitative Forecasting

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  1. Qualitative Forecasting • Also known as Technological or Judgmental Forecasting • Use • Long Term • No history • Historical patterns are not expected to apply • Several methods • Subjective • Exploratory • S-Growth Curves

  2. Subjective Methods • Disadvantages • Bias from more outspoken people or bosses • No standard method to converge on the forecast • Advantages • Simple • Incorporates experience of several experts • Jury of Executive Opinion • Face-to-face discussion • Experts from diverse areas • Jury interacts to develop a forecast

  3. Advantages Quick and easy method Have disaggregated data Disadvantages Optimistic bias Lacking big picture judgement Subjective Methods • Sales Force Composite • Tally sales force for forecast and then sum responses • Market Research /Surveys • Systematic, formal estimates based on statistical surveys • Particularly useful in estimating new product demand • Costly method

  4. Exploratory Methods • Look at alternative futures (to better plan through anticipation and influence) • Scenario Analysis • Especially applicable to strategic planning • Identify interactions among possible events • Process • Experts are presented purpose and system being modeled • Experts develop alternatives technologies • Timing and interactions are explored for alternatives • Write scenarios • Scenarios circulated for input

  5. Exploratory Methods • Scenario Analysis • Advantages • Simplifies complex interactions/systems • Considers many combinations at once • Useful when technology change expected • May improve long-range planning • Disadvantages • Evidence hasn’t shown improved management performance in dealing with changing climates when method is used

  6. Exploratory Methods • Delphi Method • Forecast time and probability of future event • Process • Diverse experts are polled for estimates • Responses are summarized and sent back for another round of estimates • Process repeats until a group opinion is believed to have been reached • If significant differences exist these are studied too • Unbiased method of getting expert opinions and idea interchange and appears to improve estimates of when event will occur

  7. Exploratory Methods • Cross Impact Analysis • Defines dependence of a forecast on other forecasts • Often used together with Delphi or Scenario • Questions are such: If A then what is chance of B? Get the conditional probabilities • Experts are forced to consider interactions • Disadvantage is that future casual interactions are hard to estimate • La Prospective • French designed process where individuals and organizational activities are emphasized in a cross analysis • The assumption is the the sponsor will act to influence the sequence to improve the possibility of positive events

  8. Exploratory Methods • Analogy Methods • Compare forecasted variable with similar case where the history /outcome are known • Ex: model intro of air travel by what happened with rail • Trend Analysis • Popular method that works OK for linear relationships • Often applied inappropriately • Nominal Group Process • Like Delphi but after initial poll, experts get together for discussion. Discussion is a possible source of bias • Case Studies • Generalizing a case study to another situation

  9. Growth or S Curves • Technology life cycles follow these curves • Slow initial growth • Rapid increase • Slowing maturity • Final decline • Expert opinion (subjective) required to estimate key components of curves - max height and proper curve (shape)

  10. Growth or S Curves • Curve explained by three parameters • a - location, b - slope and L - max height • Two most common curves are Logistics & Gompertz • Gompertz - not symmetric, reaches inflection sooner than Logistic curve • A little data can result in an accurate model, with the right curve

  11. Gompertz Logistics (Pearl-Reed) Growth or S Curves cont.

  12. Current work on Qualitative • Much of current work seems to be addressing validity (not repeatable and how to eliminate bias) • Compare and combine with quantitative methods • Judgmental techniques are used in 40-50% of business forecasts • Tend to be overconfident - but still hits the mark in many areas. • Smaller companies use judgmental techniques more often than larger firms

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